Credit Union's Plan To Buy Bank Raises Host Of Issues

Register now

The proposal by University of Iowa Community CU to acquire Hawkeye State Bank is expected to take several months to complete as both state and federal regulators sift through the particulars of the unprecedented deal.

James Forney, state credit union supervisor, said they have been discussing the deal with an advisor to both parties for several weeks but have yet to receive a formal application. "It's pretty conceptual at this point," said Forney, acknowledging that they are plowing virgin ground with the proposal (CU Journal, Jan. 27).

Among the issues being reviewed by the state regulator are whether the deal is permissible under state statute. "There is a provision in Iowa law that allows credit unions to make investments in banks or savings associations," said Forney.

The state regulator is also reviewing the financial condition of both institutions, which includes the outcome of a federal investigation into potential improprieties at the Iowa City, Iowa-based bank, which led to the firing of the CEO.

The Iowa regulator will also look at the $160-million bank's business loan portfolio to see if it may pose some risks to the $300-million credit union. Other issues to be reviewed are the proposed financing for the deal and the impact the merger will have on the capital of the credit union, and how it will be accounted for.

Credit union officials are also discussing with state regulators a proposal to expand from their current 14-county field of membership to add several low-income communities. "The credit union has always had an interest in providing services to other areas of the state," said Forney

Jeffrey Disterhoft, president of UICCU, said the credit union does not plan to operate the bank, but plans to incorporate all of its assets and liabilities and its two local branches into the CU.

The deal was approved by the boards of directors both institutions last month. Disterhoft would not disclose the purchase price.

While several Texas credit unions own and operate a bank, Town North National Bank, and at least one credit union, Arrowhead CU, has proposed starting a de novo bank, this is believed to be the first time a single credit union has agreed to acquire a bank.

NCUA officials said they have also discussed the unprecedented proposal with credit union representatives and are reviewing it to determine the ramifications for the credit unions federal deposit insurance coverage under NCUA. "We've determined that it has to be approved by the full (NCUA) Board because it exceeds the authority of the regional director," sad Clifford Northup, spokesman for the agency.

The deal will also require approval by the FDIC, which insures deposits at the bank, and by state banking regulators, who are part of Department of Commerce as Forney.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER